Should I standardize my sales comp plan?

April 2008

"We have two sales reps who have worked for us for almost ten years. They're paid mostly on commission, while everyone else gets a base salary and shares in a bonus pool. So far, nobody seems to be complaining. Is there any reason to move them into our regular plan?"

Mike: I've seen many companies, especially early stage ventures, where unequal pay plans eat away at morale like strong acid. That's true even when everyone is relatively well paid--the money is less important than the perception that everyone is being treated fairly.

But sales compensation seems to be viewed a little differently. In fact, your situation is pretty normal. As long as you're not hearing objections and your reps are doing their jobs, why upset the apple cart? You have a standard plan in place for new hires, so your employees know that you respect fairness. That's what really counts

How do I calculate reasonable sales quotas?

May 2007

"I just joined a company as CFO, and my first project is to come up with a standardized way to set our sales quotas. The present quotas seem to be completely random, which I know is wrong. But I'm clueless about how to calculate the 'right' numbers. Is there an industry standard or best practice that you can suggest?"

Mike: Each industry has its own sales productivity standards, but often they are anecdotal and not published. And even within an industry or niche, there can be wide variations in the numbers based on a company's competitive position, average deal size, and marketing channels.

You can usually get a realistic consensus about sales quotas simply by polling your current sales staff--after all, they're in the trenches, trying to close deals every day. Then talk to sales folk at competing companies, who are usually quite willing to share this information. If quotas at other companies seem significantly higher than what your own sales people say is fair, ask them to explain the gap. If they're not just lowballing you, you might learn something interesting about your company's competitive situation.

(Incidentally, be sure you also ask about the other variables that go into a good sales plan, such as the target total compensation (base + commission) for your product niche, the draw periods (typically 3-6 months for large ticket items), whether the draws are recoverable, timing for commission payments (when deals close, revenues are recognized, or cash collected) and whether there should be overrides (paying commissions on individual sales to more than one person.)